Broomsticks are manufactured by two firms which constitute a competitive industr

Question

Broomsticks are manufactured by two firms which constitute a competitive industry. Neither firm has any fixed costs. There are two consumers, W.W.West and W.W.East. The following charts show the marginal cost of producing various quantities of broomsticks at each firm, and the marginal value of various quantities to each customer:

a. What is the industry wide supply (curve) for broomsticks? What is the market wide demand for broomsticks?

b. What quantity of broomsticks are sold and at what price? How many are built by Firm A and how many by Firm B? How many are bought by W.W.West and how many are bought by W.W.East?

c. How much producers' surplus is gained in this market? How much consumers' surplus? How much social gain? Your answers to all three questions should be numbers.

d. Suppose now that Firms A and B band together and form a single (noncompetitive) firm, and that this merger has no effect on the industry-wide marginal cost curve. Now how many broomsticks are sold and at what price?

e. What is the size of the deadweight loss due to the formation of the monopoly? Your answer to this question should be a number.

Explanation / Answer

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